Busting the biggest Medicaid myth – transferring assets

As lawyers, my clients often share rumors they hear circulating “on the street” about all sorts of legal issues. I give them credit for bringing me those rumors because it gives me a chance to set them straight and it gives them a chance to get the right advice and do the right thing. Because my practice includes parental rights, the most common rumors I hear relate to Medicaid. They are also the most frustrating. I am amazed at the misinformation circulating so recklessly.

The biggest Medicaid rumor my clients have shared with me is about what to do when a parent suddenly becomes seriously ill, has no long-term care insurance, no Medicaid advance planning, and needs Medicaid to pay for permanent nursing home care. More than one client has told me that friends and acquaintances have advised them to put all their parents’ assets in their own name, because then Medicaid sees that they don’t own anything and can immediately qualify for Medicaid.

WRONG!

Not just wrong, but full of problems that can subject those in need and their families to punishment, disqualification or, worse, criminal prosecution.

Whether an ailing senior citizen immediately qualifies for Medicaid to pay for nursing home care depends on whether they have Medicaid planning ahead or whether their current financial status qualifies them from the start. The really needy should have no problem qualifying. It’s the lower middle class – those with modest assets that they don’t want to lose altogether, especially if they have a good spouse or children – who face a more difficult task of eligibility.

Congress has devised methods by which those who are not destitute but not wealthy can try to protect some or all of their assets in order to qualify. At best, someone who plans ahead of time can create a Medicaid-qualifying trust, transfer all of their assets to the trust, and wait for the five-year “lookback” period. When the person can prove that they have not owned any assets for at least five years (because the trustee of the trust owns their property and the Medicaid applicant cannot be the trustee), they should be eligible for Medicaid.

It’s at worst — when a senior doesn’t plan at all, or what we in the industry call “the crisis Medicaid case” — that problems arise. And this is where those rumors abound. Because Medicaid looks back five years into the individual’s financial history to determine what they own (possessed) and where it went, any transfer of their assets into another person’s name without adequate consideration for the transfer will provide the Medicaid applicant with a penalty period, which means that they are not eligible for cover on the basis of a fixed formula for a certain period of time.

The worst what a child can do is transfer their parent’s assets from the parent’s name, thinking Medicaid won’t know, or not report all assets, thinking Medicaid won’t find them – both amount to defrauding Medicaid and may subject that person to criminal charges. (Different rules apply for spouses.) The fact is that Medicaid thoroughly reviews each applicant’s financial background, cross-references and references documents, reviews all financial transactions, bank accounts, and other assets, and will determine whether funds have been transferred. By the time they find out, it will be too late for the senior to do anything to reverse those transfers and they will be disqualified from receiving Medicaid benefits for at least a certain period of time.

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Congress has approved several methods by which even “crisis cases” can protect some of their assets. Some examples include purchasing an irrevocable funeral fund, investing in certain home improvements, making gifts with promissory note repayments, and entering into personal service contracts with relatives. The only way to know if you or your loved one can protect some or all of their assets is to consult a senior attorney who specializes in Medicaid planning.

As my father used to say, “Believe half of what you see and nothing of what you hear”. This is good policy when it comes to Medicaid rumors. Get the right advice so you can get the best for your loved ones.